MUR Shipping invoked a force majeure clause when US sanctions impeded contractual payment in US dollars. RTI offered to pay in euros instead. The Supreme Court held that reasonable endeavours in force majeure clauses do not require the affected party to accept non-contractual performance, absent clear wording.
Background
MUR Shipping BV (shipowner) and RTI Ltd (charterer) entered into a contract of affreightment on 9 June 2016 for the carriage of bauxite from Guinea to Ukraine. Freight payments were to be made in US dollars. On 6 April 2018, the US Office of Foreign Assets Control (OFAC) imposed sanctions on RTI’s parent company, United Company Rusal plc. Although RTI itself was not directly listed, as a majority-owned subsidiary it was subject to the same restrictions. It was common ground that these sanctions made it highly probable that timely payment in US dollars would be delayed, as any US dollar transfer would pass through a US intermediary bank that would initially stop the transfer pending investigation.
On 10 April 2018, MUR served a force majeure notice under clause 36 of the contract, asserting that the sanctions prevented contractual payment in US dollars. RTI rejected the notice and offered to pay in euros instead, undertaking to bear any additional costs or exchange rate losses suffered by MUR in converting euros to US dollars. MUR refused, insisting on its contractual right to payment in US dollars, and suspended performance by refusing to nominate vessels. RTI commenced arbitration claiming damages for the cost of chartering replacement vessels during the period of suspension.
The Issue
The central issue was whether the exercise of reasonable endeavours under a force majeure clause may require the party affected to accept an offer of non-contractual performance from the other contracting party in order to overcome the effects of the force majeure event or state of affairs. Clause 36.3(d) of the contract provided that a force majeure event must be one that “cannot be overcome by reasonable endeavors from the Party affected.”
The Decisions Below
The arbitrators held that the force majeure event could have been overcome by MUR accepting RTI’s offer to pay in euros, and that MUR had therefore breached the contract. On appeal, Jacobs J reversed that decision, holding that reasonable endeavours did not extend to accepting non-contractual performance. The Court of Appeal majority (Males and Newey LJJ) restored the arbitrators’ award, holding that the force majeure state of affairs was “overcome” if its adverse consequences were completely avoided by the offered alternative. Arnold LJ dissented, agreeing with Jacobs J that clear wording was required before a party could be required to accept non-contractual performance.
The Court’s Reasoning
General Principle, Not Narrow Interpretation
The Supreme Court rejected the Court of Appeal majority’s approach that the issue was merely one of interpretation of the particular word “overcome” in clause 36.3(d). Lords Hamblen and Burrows held that the reasonable endeavours proviso is a very common feature of force majeure clauses, whether express or implied, and that the issue raised was one of general application requiring resolution as a matter of principle:
We are therefore not dealing with an unusual feature, but rather a very common feature, of a force majeure clause.
The Object of Reasonable Endeavours Provisos
The Court held that the underlying rationale of reasonable endeavours provisos is one of causation. A party is excused from performance only where the failure to perform is caused by the force majeure event. If the affected party can reasonably prevent the failure, the cause is the party’s own inadequate response rather than the event itself. Critically, however, this causal inquiry must be assessed by reference to the parameters of the contract:
The relevant question is whether reasonable endeavours could have secured the continuation or resumption of contractual performance. It is reasonable steps towards that end with which the reasonable endeavours proviso is concerned. It is not concerned with the steps that could or should have been taken to secure some different, non-contractual, performance. The object of the reasonable endeavours proviso is to maintain contractual performance, not to substitute a different performance.
Applying this to the facts, the Court held that the impediment to contractual performance — banking delay for US dollar payments — remained in place and was not “overcome” by offering non-contractual performance in euros:
Put another way, it would be absurd to say that MUR caused the non-performance of the contract by failing to accept an offer of non-contractual performance.
Freedom of Contract
The Court emphasised the fundamental principle of freedom of contract, including the freedom not to accept non-contractual performance:
The principle of freedom of contract includes freedom not to contract; and freedom not to contract includes freedom not to accept the offer of a non-contractual performance of the contract.
Clear Words Required to Forego Valuable Contractual Rights
MUR had an undoubted contractual right to insist on payment in US dollars. The Court held that a party should not be required to forego a valuable contractual right unless the contract makes clear that was the parties’ intention:
In our judgment, clear words would be necessary for MUR to be required to forego that valuable right, including making clear the circumstances in which that would be so required. Neither of these matters are addressed by clause 36.3(d).
Certainty in Commercial Contracts
The Court identified substantial practical problems with RTI’s proposed test, which would require inquiries into whether acceptance of non-contractual performance would involve “no detriment” and would “achieve the same result” as contractual performance. The Court held that these inquiries gave rise to considerable legal and factual uncertainty, including questions about what constitutes detriment, when it is to be assessed, and how to identify and match the “purpose” underlying contractual obligations. The Court observed:
It is not unmeritorious or unjust to insist on contractual performance, all the more so if being precluded from doing so would introduce uncertainty contrary to the expectations of reasonable business people.
The Authorities
The Court found strong implicit support in Bulman & Dickson v Fenwick & Co [1894] 1 QB 179 and Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries and Food [1963] AC 691 (the Vancouver Strikes case). In Bulman, charterers were entitled to insist on their contractual right to have cargo unloaded at a strike-bound berth even though it would have been reasonable to divert to an unaffected berth. As Pollock B stated in that case:
It is not a question between the plaintiffs and defendants as to what is reasonable or unreasonable, it is a question of contract between the parties.
In the Vancouver Strikes case, the House of Lords held that charterers were not required to exercise options to load alternative cargo even though that was the only way to avoid delay. The Court found the present case was even stronger because MUR had no option at all to accept euros — there was no contractual alternative.
The authorities relied upon by RTI were found to provide weak or no support. B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419 was distinguished because the offer in that case was merely early contractual performance, not non-contractual performance. Payzu Ltd v Saunders [1919] 2 KB 581 concerned mitigation of loss after breach, which is a fundamentally different question from whether a breach has occurred. The Suez frustration cases were held to be inapplicable because frustration operates differently from force majeure clauses, and in The Eugenia the alternative route was in fact contractual performance.
Practical Significance
This decision establishes as a matter of general principle that, absent clear express wording, a reasonable endeavours proviso in a force majeure clause does not require the affected party to accept an offer of non-contractual performance from the other contracting party, regardless of whether such acceptance would cause the affected party no detriment. The decision prioritises certainty and predictability in commercial contracts over a broad evaluative test of reasonableness. It confirms that the focus of reasonable endeavours is on achieving contractual performance as defined by the terms of the contract. Parties wishing to extend reasonable endeavours obligations to encompass acceptance of non-contractual performance must do so by clear express provision. The decision is of wide significance for the interpretation of force majeure clauses in English commercial law, particularly in international trade contracts.
Verdict: The Supreme Court unanimously allowed MUR Shipping BV’s appeal, holding that MUR was entitled to rely on the force majeure clause and was not required to accept RTI’s offer of non-contractual performance (payment in euros instead of US dollars). The decision of the majority of the Court of Appeal was reversed.
